by Dan Shirai
It is the goal of every independent mining concern in Brazil – an absolute must for the majors like Vale, CSN, MMX, and Anglo American – to have affordable, reliable and preferably proprietary access to a port that can channel product to the world. Two port areas in particular – Sepetiba and Açu in the state of Rio de Janeiro – have become hotspots of activity involving some of the world’s biggest mining and steel firms.
Aside from being a tropical paradise on Rio’s lush southern coast, Sepetiba is among the safest ports in the world thanks to a natural breakwater barrier extending across the bay, protecting it from the open ocean. It is the site of Vale and CSN’s shared iron ore shipping hub. Starting early next year, Arcelor Mittal will be jointly developing a new $250 million port and barge complex across the bay with Adriana Resources.
Adriana, a comparably small Vancouver-based miner, emerged on the scene alongside Arcelor Mittal through a clever bet on Brazil’s desperate need for ports. In 2006 it created a company called Brazore, based in Rio and led by Joe Griebel, former CEO of Inco South America, to target mining opportunities.
As a miner, its ultimate goal is securing ore deposits and exporting the raw material to global clients. To get to that point, however, it decided to reverse engineer its way into Brazil’s highly sought after mining scene by addressing the logistics question first.
In mid-2006, the company noticed that while iron ore was plentiful, with numerous mines and independent producers throughout the so-called iron ore quadrangle – encompassing an asset-rich area of the states of Rio and Minas – infrastructure to move it was scarce. A 400 kilometer MRS railroad, run by the government, and Vale and CSN’s FCA railroad, are the main arteries between mines and the ocean.
In 2006, Adriana teamed up with two other groups to acquire and develop a new port that would serve independent miners along the MRS corridor. A year later it identified a stretch of land along relatively shallow waters that could be accessed by barges, called STVs, that transport iron ore to trans-ocean vessels docked in deeper waters off the coast.
In mid 2007 Adriana began a permitting process for the port and laid out a plan to start exporting up to 20 million tons of iron ore, with a target of 50 million tons over the long term, say Adriana executives, without specifying how many years that would take.
Financing for the roughly $250 million project was already being arranged, including discussions with bank lenders and offtakers. But as those talks were getting underway, Arcelor Mittal swooped in on Adriana, offering to buy 80% of the project and provide financing support for additional costs related to the port.
Complex Capital Web
The deal, set to close in September, substantially enhances and simplifies Brazore’s financing plan, as the UK-based miner is cash-rich. The new partnership may alter its previous plans, eliminating the need for a more complex web of capital. Adriana executives decline to comment on details of the financing.
Arcelor simultaneously announced an $810 million acquisition of London Mining’s Brazil assets, located in the state of Minas Gerais. The two agreements give Arcelor a competitive and nearly integrated mining complex in Brazil.
For Adriana, foresight and speed in securing port real estate and permits yielded a lucrative partnership with a global player, skyrocketing it into a new league of LatAm natural resource developers. “This completely changes the story for us,” says Peter Ball, head of business development at Adriana. He tells LatinFinance that Adriana’s next step will be to acquire iron ore assets either on a full ownership or a joint venture basis, targeting numerous mining concerns in Rio and Minas.
“We’re looking to acquire and partner with mining companies located within 10-15 kilometers of the MRS railroad,” says Richard Barclay, CEO of Adriana, adding that discussions have already begun.
Meanwhile, in mid-September, global bidders including Severstal, Nippon Steel, and China’s Shang Gang Group were heard submitting bids for CSN’s Namisa, an integrated project located in the iron ore quadrangle serviced by MRS. Bids are heard in the $8-$9 billion range. Whatever the result, Adriana’s new port is sure to benefit.
A New Port City
Further up the shore in the state of Rio lies another hotbed of port development. The Açu region, a virtually barren stretch of coastline some eight kilometers long, is set to be converted into a gargantuan industrial development. Investment is estimated at $20 billion by Joaquim Levy, Rio de Janeiro’s finance minister.
“There are two steelmaking projects estimated at $10 billion and the rest represents another $10 billion or so,” says Levy, adding that the numbers are preliminary. Brazilian billionaire entrepreneur Eike Batista, the ultimate owner of the Açu plot of land, is calling on his global counterparts, promising a new industrial park to include power plants, auto and steel production units and real estate to support new arrivals.
The first Açu project Levy refers to is being planned by Techint, the global steel and tubemaker. Another foreign steelmaker is also eyeing a plant in the same port area, he adds. Both will look to draw on high-grade Brazilian iron ore, and Batista is heard courting auto companies and other industrials. Part of the plan, say people involved, includes installing sizable power generation facilities to feed the new industrial center.
LLX, Batista’s logistics company that services iron ore mines belonging to MMX and Anglo American’s IronX, as well as the legal owner of the Açu port area, will develop and improve the local railway that connects mines to the port. An ore pipeline is also being built by third parties.
“Our job is to help with the strategic planning and the permitting process,” says Levy, who claims rapid advancements on the project’s multiple fronts. The official says he is also working on new permitting for construction of shipyards in Rio.
Red Tape Bottleneck
Despite efforts by Brazil’s private sector, local political allies, and strategic foreign investors, rapid development in the country’s port system is hindered by a political blockage that appears to have no immediate resolution. Meanwhile, lines of trucks waiting to unload cargo at many of the country’s busiest agricultural ports grow longer, hindering growth in one of Brazil’s most critical export sectors.
Brazil’s 13 publicly owned ports, operated on concession, and its 123 privately owned ports are the subject of a legislative battle whose ultimate goal is to establish new rules for operating and investing. Today a handful of large concessionaires operates the public ports, which include some of the country’s busiest.
These operators are subject to a series of taxes and are obliged to move whatever cargo the ports regulator deems necessary. Private ports, often belonging to specific companies or exporters, are subject to less taxation and have full control over the type of cargo they ship.
A legislative initiative to increase competition and efficiency proposes a new system for private ports that involves an auction for the right to operate the facilities. Private owners have staunchly opposed the initiative, while concessionaires have also found fault.
Brazil’s port quality compared to the rest of LatAm is lamentable and better only than Venezuela’s and Bolivia’s, according to the World Economic Forum’s (WEF) most recent report on the region’s infrastructure. It should look to Chile, by far the region’s leader in ports, Mexico, Colombia and even Peru for a clue on how to maneuver itself out of this situation. LF